Tolkien Estate Sues New Line, The Hobbit Not Yet Threatened

[Voronwë the Faithful]

I know.

[Frelga]

Those who "need to catch up" are better off following my updates. Interesting though, that not a single person commented at all on my last post, even though it detailed the most significant development in the case (in regards to the issue of whether New Line will lose the rights to The Hobbit) since the case was first filed.

Speaking for myself, I'm afraid it's because I did not understand the significance. Or the post.

[Voronwë the Faithful]

The significance is that for the first time, New Line is directly challenging the plaintiff's request to have the ability to terminate New Line's rights to make future Tolkien films, thus stopping or at least delaying the Hobbit films. I assume that most people are probably most directly interested in that aspect of the lawsuit, even if they (like me) are sympathetic to the plaintiff's right to receive their due royalties. If New Line wins this motion, that no longer is something to be concerned about. That's why I say it is so significant.

In the rest of the post, I explain why I tentatively think that New Line has some good arguments in their favor in support of that motion. Their first argument is that the plaintiff's are trying to revoke only part of the contract, while leaving the rest of the contract in place. The law generally frowns on that type of partial revocation. Their second argument is that what the plaintiff's are really trying to do is revoke New Line's agreements with third parties, Zaentz and Miramax, and they don't have the right to do that. And the third argument is that it is premature for the plaintiffs to make that request, because the contracts say that they can only be revoked once their has been a "final determination" that a sufficiently egregious breach has occurred, and a final determination can not occur until all appeals have been exhausted.

Is that at all clearer?

--------------

Ax, I see you deleted your post with the Salon article in it. That wasn't necessary. Sorry I came down so hard on it.

[axordil]

Well, if it was factually incorrect, it didn't add anything--except perhaps to note that not just us Tolkien geeks are watching the case with interest. There's an awful lot of money wrapped up in these endeavors.

I could see your frustration, though, given the care you and Soli have given to the discussion here. I confess, while I've read the thread, I have not taken the time to absorb it all. The curse of the cursory glance, perhaps.

[ArathornJax]

So if I take this right Warner Bros/New Line argues that until a significant breech is found to have occurred the argument for revoking the rights should not be a part of this suit. So would that mean if they want this a second suit would have to be brought even taking longer to come about? Also, doesn't Zaentz still hold the rights and has licensed them to New Line for x years based on production? At the end of that time won't the rights revert back to Zaentz or his heirs (he is getting older)? Just trying to clarify in my mind what I've read.

Bottom line it comes back to what two former collegues have told me; that there is just too much money in the two movies (for The Hobbit) to be made and they will be made and shown. Not only are they looking at movie returns, but the huge money both movies will bring on the DVD market. I am somewhat surprised that a settlement was not reached unless the Estate is being firm in its demands and Time Warner is willing to go the distance feeling they will have less to pay from the court order than what the Estates wants. The games a corporation will play to minimize its expenses that it owes to others while maximizing their own.

In the end I am still convinced that the two Hobbit movies will be made, seen in the theaters and gone to DVD. Personally, I think it would be fun to see GDT's interpretation of the movies, but they will never live up to what my imagination has come up with from reading the books.

[Voronwë the Faithful]

So if I take this right Warner Bros/New Line argues that until a significant breech is found to have occurred the argument for revoking the rights should not be a part of this suit. So would that mean if they want this a second suit would have to be brought even taking longer to come about?

Yes, that's correct, AJ. That is one of New Line's three arguments.

Also, doesn't Zaentz still hold the rights and has licensed them to New Line for x years based on production? At the end of that time won't the rights revert back to Zaentz or his heirs (he is getting older)? Just trying to clarify in my mind what I've read.

Again, correct. And presumably, if the plaintiffs were successful at getting New Line's rights terminated, they would immediately revert back to Zaentz. It is most complicated.

[Primula Baggins]

And is there any reason Zaentz would not then immediately make a deal with New Line?

[Voronwë the Faithful]

I don't know. I've wondered that exact thing myself. Or, more likely, Warners itself.

Looking back at the first couple of pages of the thread, I recall that I originally thought that the plaintiffs were actually trying to get the rights to revert back to them. soli convinced me that that was not - and could not - have been the case, and I continue to believe that he was correct. Moreover, according to New Line's motion for summary adjudication, the plaintiffs have expressly stated in answers to interrogatories that their intention is only to have New Line's rights terminated, not Zaentz's. I can not think of any legal reason why Zaentz would not be able to turn around and sell New Line or Warners the same option, for the same price, so that the films could continue uninterrupted (and therefore Zaentz could collect his share of the royalties for the films, a significant motivation for him to do exactly that).

soli, are you reading this? What do you think?

[solicitr]

Not sure- especially since this is NY law, ultimately. It would *seem* to me that there might be some sort of estoppel which could be raised against it, or an argument that Zaentz if he tried it would be in effective breach by not living up to his contractual obligations in good faith if he were to license it to a party which (by then) would have been established as dishonest.

I do recall that Zaentz as the principal was responsible for paying the Estate- or would have been, but for a 1998 side-agreement he made with New Line to let them deal with it (that agt. is a major basis for alleging that privity existed between NL and the Estate at all).



But it's not really my field, and I don't think I've ever seen a case involving that sort of issue.

[Voronwë the Faithful]

Not sure- especially since this is NY law, ultimately. It would *seem* to me that there might be some sort of estoppel which could be raised against it, or an argument that Zaentz if he tried it would be in effective breach by not living up to his contractual obligations in good faith if he were to license it to a party which (by then) would have been established as dishonest.

I agree that it *seems* like there should be a reason why Zaentz should be estopped from doing that, and maybe it would be founded in the covenant of good faith and fair dealing implied in all contracts.

I do recall that Zaentz as the principal was responsible for paying the Estate- or would have been, but for a 1998 side-agreement he made with New Line to let them deal with it (that agt. is a major basis for alleging that privity existed between NL and the Estate at all).

Yes, it was that agreement that led me to originally conclude that if New Line's rights were terminated they would revert back to the Estate, since New Line essentially "stood in the shoes" of UA, the original purchaser of the rights. But you convinced me otherwise, and I continue to be convinced that you are correct. Certainly it is New Line's position in the summary adjudication motion that the plaintiffs are only seeking to terminate New Line's rights, not Zaentz's.

But it's not really my field, and I don't think I've ever seen a case involving that sort of issue.

Nor is it mine. That hasn't stopped me from commenting "authoritatively" about it all over the internet, though. Compared to the journalists making proclamations about the case, we are both true experts.

[solicitr]

Compared to the journalists making proclamations about the case, we are both true experts.

Compared to the journalists making proclamations about the case, a first-year law student is a true expert.

[Frelga]

The significance is that for the first time, New Line is directly challenging the plaintiff's request to have the ability to terminate New Line's rights to make future Tolkien films, thus stopping or at least delaying the Hobbit films. I assume that most people are probably most directly interested in that aspect of the lawsuit, even if they (like me) are sympathetic to the plaintiff's right to receive their due royalties. If New Line wins this motion, that no longer is something to be concerned about. That's why I say it is so significant.

In the rest of the post, I explain why I tentatively think that New Line has some good arguments in their favor in support of that motion. Their first argument is that the plaintiff's are trying to revoke only part of the contract, while leaving the rest of the contract in place. The law generally frowns on that type of partial revocation. Their second argument is that what the plaintiff's are really trying to do is revoke New Line's agreements with third parties, Zaentz and Miramax, and they don't have the right to do that. And the third argument is that it is premature for the plaintiffs to make that request, because the contracts say that they can only be revoked once their has been a "final determination" that a sufficiently egregious breach has occurred, and a final determination can not occur until all appeals have been exhausted.

Is that at all clearer?

A bit. Basically, Warner is saying that New Line should not drag Zaentz into the brawl unless the judge says so first. And you think they have a point. Which bodes well for the movies.

Layman's terms are my friend.

[Aravar]

in the covenant of good faith and fair dealing implied in all contracts.

Really?

That's quite different from English law, where there is no such general obligation.

From the same perspective I find the idea that the Estate has rights aginst New Line in contract rahter strange. Ordinarily they would have to involve Zaentz and be trying to revoke the contract with him.

[Voronwë the Faithful]

Well, there is no question that New Line has an obligation to pay the royalties due (if any), because they explicitly assumed that obligation. So the breach of contract cause of action is certainly valid. But I agree with you that they should have to involve Zaentz to try to revoke the contract, which they haven't done. They are trying to have their cake, and eat it, too.

[ArathornJax]

Very interesting article from the Estate and their Lawyers today located here.

In my opinion they really support Voronwë's point that they don't want to stop The Hobbit as a movie from coming out. They just want to terminate New Line's rights to let it come out. From the article:

But Miss Tolkien and the other trustees yesterday insisted they were not trying to jeopardise the film.

Steven Maier, a commercial litigation partner with the Oxford law firm Manches, said: “What they are seeking is a declaration from the court New Line Cinema has lost its rights to make those films because of its breach of contract in failing to pay even one cent of the millions of dollars owing to the trusts from the three Lord of the Rings films.

From their US attorney:

“Should this case go all the way through trial, we are confident that New Line will lose its right to release The Hobbit.”

I would assume then the rights would revert back to Zaentz who would then have to make a new contract with MGM to release the movie. Quesiton though, has New Line sunk any money into the movie because I am sure whoever got the rights would have to pay them first. Does The Hobbit still look on track for a late 2011 release?

[Voronwë the Faithful]

Interesting article, but completely slanted to one side, and full of inaccuracies. Once again they make it seem that the lawsuit just started, when it has been going on for a year and a half. They disregard the fact that New Line has filed a motion to have the cause of action asking for the right to terminate New Line's rights summarily adjudicated. And, of course, there is no such thing as a "Supreme Court of Los Angeles" - the case is in the Superior Court of California, County of Los Angeles.

I do like Priscella Tolkien's scarf, though.

[ArathornJax]

Thanks Voronwë since I have only followed this mainly on this site. I just read your posts over at The One Ring about it (nice conversation with Kristin Thompson). I agree with the scarf comment, and for her age, I think she is looking healthy for a 80 year old woman if that is a recent picture.

I haven't seen too much LOTR talk lately. Are you up for a Tolkien Letter or is Arda still taking up a lot of time? I guess I need to pipe in on Arda at some point.

[Voronwë the Faithful]

AJ, I would love to talk about another one of Tolkien's letters. Bring it on!

[Voronwë the Faithful]

So the summary adjudication motion has now gotten pushed back to October 5 (it was scheduled for September 16), and both sides dropped the various discovery motions that they had. The listing for the hearing on the summary adjudication motion has a note that says "CASE IN SETTLEMENT DISC" which I assume means "case in settlement discussions." I'm guessing that there is a good chance that they are close to a settlement.

[solicitr]

That is hopeful. Interesting that the court would actually put something like CASE IN SETTLEMENT DISC on the docket; here they wouldn't dream of adding 'commentary' like that.

You know, I've wondered from the outset whether discovery might provide the settlement leverage: there is, I would guess, a lot of accounting material (not just LR) that New Line/TW really, REALLY don't want to come out (and it strikes me that the plaintiffs can legitimately go after it in discovery as part of a 'pattern and practice' argument; it's not just a fishing expedition).